Investing.com -- Application software stocks have staged two short-lived recoveries this year, but Goldman Sachs says a durable rally remains months away at best.

In a note from analyst Gabriela Borges, Goldman said the median app software name in its coverage is down 38% year-to-date in 2026. The analyst noted two bounces, with a 14% move higher between Feb. 23 and March 6, and a 22% rebound from April 10 through mid-May.

Despite those moves, Goldman concluded that "the sector is likely to be range-bound over at least the next several months."

Goldman cited signs of progress at incumbent software vendors, including leadership changes at Klaviyo, Workday and Adobe, as well as early-stage product refinements at ServiceNow and Salesforce.

However, the bank said more consistent AI-driven outperformance is likely a 2027 event, with several companies already flagging that monetization timelines extend 12 to 18 months beyond current AI product launches.

The key threshold, Goldman argued, is whether artificial intelligence revenue proves additive to overall company growth rather than merely displacing existing software budgets.

The bank said, "AI disclosures will only be received positively if investors can see that this revenue pool is additive to WholeCo growth."

Goldman added that "valuation alone is not a reason to buy the stocks; but valuation coupled with improving fundamentals is."

The bank flagged Microsoft and ServiceNow as idiosyncratic opportunities, while cautioning that a new cohort of value-focused software investors still requires evidence of positive fundamental catalysts before turning constructive.